Under perfect capital mobility,an increase in world interest rates will

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Under perfect capital mobility, an increase in world interest rates will attract more foreign capital, leading to an increase in investment and income in the domestic economy. It will not necessarily affect the balance of payments since any capital outflows resulting from the increased investment can be financed through capital inflows. The reduction in domestic interest rates may occur in an open economy with imperfect capital mobility.

Under Perfect Capital Mobility,an Increase in World Interest Rates Will